Should the McMahons Still Be Running WWE?

While World Wrestling Entertainment (WWE) has been a technology pioneer in effectively moving its pay-per-view events from the traditional cable/satellite delivery model to an over-the-top digital streaming network, there is no guarantee those efforts will work.

In theory the WWE Network, which uses a subscription model, should give the company more predictable revenue than the volatile PPV business. The network also allows the company to charge its customers less while giving them much more. That's usually a win-win for customer and company, but it only make sense if enough people sign up.

So far that has not happened. And while it's still very early in the game, it's at least worth considering that the WWE Network could fail or at least be a drain on the company for longer than expected. The company's struggles to get people to sign up for the network, along with its disappointing TV deals, leads to questions of whether WWE's management overplayed its hand and blew up its declining (but still lucrative) PPV business earlier than it should have.

One investor, Lemelson Capital, has called on WWE's board of directors to replace the executive management team or explore the sale of the business. 

"WWE has affirmed that even with one million subscribers for its WWE network, the company stands to lose between $45 million and $52 million in FY 2014, which validates the original short thesis," said Emmanuel Lemelson, chief investment officer. "This follows what we believe to be material misrepresentations by the company about both the performance and operating profit model of its WWE Network, which the company has wrongly labeled 'a home run.'"

Lemelson is being especially harsh -- and the reality is the company's ownership structure makes it extremely unlikely management would be replaced. But that doesn't mean changes in leadership may not be warranted.

Why is Lemelson mad?

The expectations for the WWE Network subscriber base and the company's North American TV deal have not lived up to expectations. WWE has only announced subscriber numbers once, coming in just below 700,000 42 days after launch. With 1.5 million or so needed for break-even, that number could be seen as a disappointment. But it's not so low that the company won't make its stated goal of 1 million U.S. subscribers by the end of the year.

The company's TV deal was similarly underwhelming -- the North America portion of it (the biggest part) came in at about a 50% increase, well below the increase other sports properties have been receiving.

Basically, people had high hopes -- likely encouraged by WWE management's enthusiasm -- and the results came up short. That's reason to be disappointed but it's hardly a reason to fire the executive team or sell the company. 

What is fact and what is fiction?

WWE might be the only company in existence where a number of its real executives also play executive characters on TV. Vince McMahon is often identified on the various WWE programs as "chairman," which he is, as well as the company's actual CEO.

In other cases it's more confusing Paul Levesque, the wrestler "Triple H," is identified as COO. In real life, he serves as executive vice president, talent, live events and creative. Levesque is not running the business the way a COO would; instead he has a big hand in the company's creative direction (though McMahon still makes the final calls). Levesque's job is best-served being on the road at all the company's TV tapings.

The same cannot be said about McMahon, who as CEO would be better-served giving up some creative control to focus on steering the business. A similar argument could be made for Stephanie McMahon, who in real life is the company's chief brand officer, while on TV she's sort of vaguely depicted as an owner. Stephanie is also both the real-life and story-line wife of Levesque. 

Though Vince McMahon rarely appears on television any more and Stephanie generally only appears on the live Raw (which tapes Monday nights) as well as some Sunday PPVs, neither is spending the workweek in the office.

Vince McMahon is good for the product

It's hard to argue that having Vince McMahon running the wrestling or product end of the company is a bad idea. He is the only modern-day wrestling promoter to have consistent financial success with the pseudo-sport. Both Vince historically and Stephanie recently have also been good for the product in their roles as part-time performers. Both McMahons play evil owner well and that has meant money for the company.

What is unclear is whether a wrestling promoter and his daughter (who was brought up in the business) should be leading the non-creative parts of the company. The WWE's future lies in making the company's streaming network a success. The problems inherent in that require a different type of marketing than selling PPVs and tickets to live events, which have been two of the three key revenue drivers for WWE.

The McMahons and Levesque are of course not working alone, but they largely control the direction of the product. That direction may not ultimately support their new business reality. It makes little sense to throw them out when there is nobody else with experience running a successful wrestling company, but it's not crazy to think the company's board should consider empowering another voice that has experience driving subscriptions.  

The business has changed

The third revenue driver is the rights fees the company receives from its television partners.

Television rights fees in the company's key markets have been locked in for the next five years. That means that the ratings for individual episodes of Raw and Smackdown -- the company's flagship shows -- are much less important than they have traditionally been. A higher rating does not mean more money for the company and ratings are unlikely to fall precipitously. Because of that, it's worth questioning whether three of the company's top four executives (CFO and Chief Strategy Officer George Barrios would be the fourth) should be wasting time appearing on television each week.

Vince McMahon has a reputation as someone who oversees even the smallest details on his TV shows -- down to delivering lines to the hosts during the shows. It might be time for him to step back from that and focus on what's necessary to grow the network. Whether that means meeting with partners, doing media appearances to tout the network, or traveling the world to ensure global subscriptions hit target numbers, Vince needs to realize that day-to-day creative does not matter as much as it once did.

The current team needs to stay in charge because they are the only people available who have run a wrestling company successfully. But they need to shift priorities and realize that they are no longer carnies who live and die with the box office for each show. That may mean adding someone to the top team with board backing who has enough clout to not worry about being fired for disagreeing with the McMahons. 

You fire executives or sell a company when it's clear things are not working. All that's clear with WWE is the network is not yet a sure thing and the North American TV deal increased, but not as much as expected. Changes in approach are needed, but changing leadership would be premature.